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Shell hints at boosting dividend payout once oil market recovers

Bloomberg: May 14, 2020

Royal Dutch Shell said it will be well placed to boost shareholder payouts once the oil market recovers as it sought to appease investors after last month’s surprise dividend cut.

Shell broke with industry convention playbook when oil’s collapse forced it to slash payouts. For decades, Big Oil had used its hefty balance sheet to borrow money when needed and keep investors sweet until the next upward cycle. But 2020’s unprecedented market rout has seen several major players – including Exxon Mobil and Equinor – freeze or reduce dividends.

When “our outlook stabilises and our balance sheet is in the right position, then we should be in a very strong position to increase shareholder distributions”, chief financial officer Jessica Uhl said on Wednesday on an investor call, citing the potential for both dividends and share buybacks.

The Anglo-Dutch company’s shareholder returns had looked unaffordable even before the coronavirus pandemic hit. The company said in January it had slowed the pace of its buyback programme and was unlikely to hit its $25 billion (Dh91.8bn) target this year. In March, it announced the cancellation of the next tranche of purchases as the severity of the outbreak became clear.

Shell has had to pull on “financial levers” harder than it would have liked, chief executive Ben van Beurden said on Wednesday on the call. Cutting the dividend doesn’t give the company more money to spend, but means it no longer needs to borrow to finance the payout, he said.

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